Use the table to solve the problem. Round to the nearest cent.
-Felipe Rivera's savings account has a balance of $4,277. After 5 years what will the amount of interest be at 6% compounded quarterly?
A)$128.31
B)$1,488.52
C)$1,483.52
D)$1,474.52

Question

Use the table to solve the problem. Round to the nearest cent. 
-Felipe Rivera's savings account has a balance of $4,277. After 5 years what will the amount of interest be at 6% compounded quarterly?
A)$128.31 
B)$1,488.52 
C)$1,483.52 
D)$1,474.52

Quizplus · Accepted Answer

Using the compound interest formula, $A=P\left(1+\frac{r}{n}\right)^{nt}$ where A is the end balance, P is the principal, r is the interest rate, n is the number of times compounded per year, and t is the time in years, we get:

$A = 4277\left(1+\frac{0.06}{4}\right)^{4\cdot5}$
$A = 4277\left(1.015\right)^{20}$
$A = 4277\cdot1.483520$
$A = $6,344.42

So the interest earned is $6,344.42 - $4,277.00 = $2,067.42

Rounding to the nearest cent gives $1,483.52, so the best choice is C. Using the formula for compound interest, we have:
A = P(1 + r/n)^(nt)
where A is the final amount, P is the principal (starting balance), r is the interest rate (as a decimal), n is the number of times compounded per year, and t is the number of years.
Plugging in the given values, we get:
A = 4277(1 + 0.06/4)^(4*5)
A ≈ $5,760.52
The interest earned is therefore:
I = A - P
I ≈ $1,483.52
Rounding to the nearest cent, the answer is C.

Use the Table to Solve the Problem